“As Procurement professionals most of us are highly skilled at strategic sourcing and negotiating contracts. However, experience and research tell us that a significant portion of the value will leak away if we do not manage our agreements. Products change, pricing terms need updating, contract language may be subject to interpretation, key cost drivers are not managed and other contract compliance issues may arise. These issues are especially problematic if they occur with our most strategic suppliers”.
We have written frequently about developing strategic supplier relationships from our point of view, and recently found an extensive White Paper on this vital subject. A link to the entire white paper can be found at the end of this post.
The opening paragraph is an extract from the 2016 white paper from the National Association of Educational Procurement’s report on strategic suppliers. Given that the source is an organization of educators, you will not be surprised to learn it’s a lengthy report with many charts. It also includes a methodology for ID’ing strategic supplier relationships, some case studies and a sample supplier scorecard. While the education world may have many differences from manufacturing OEM’s, this report appears to have broad applicability.
Here’s more:
“There is a considerable amount of consulting experience supported by research to suggest that unmanaged contracts (supplier relationships) will drain a substantial amount of value over time. The value leakage is not due to improper actions, but is the result of relationships suffering from neglect. Products change, prices change, people interpret contract provisions differently, account representation changes etc. As procurement professionals we are conditioned to think of value only in terms of price reductions or cost savings. Mature supplier relationships should harvest price opportunities. Arguably, there is greater value in non-price components; although they are harder to measure. Consider the impact that key suppliers can have on customer service and the efficiency of procure-to-pay transactions. These are critical value elements for key stakeholders”.
“Managing suppliers with [a high] level of intensity takes resources and thoughtfulness. It is critical for the procurement team to apply a set of criteria to supplier relationships in order to segment them into various categories [Kraljic Model]. The importance of segmentation is to focus scarce procurement department resources on those relationships that have the potential to significantly impact objectives. In this regard, the establishment of strategic supplier goals and the metrics necessary to measure achievement is a critical process. The items we put on scorecards will drive a lot of meetings and associated activity. If most of this activity is transactional, perfunctory, or looking backwards, then we have missed a major opportunity to drive innovation and forward-looking improvements in our operation”.
If these extracts sound like something worth your attention, you can check out the entire white paper.